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Bangladesh's capital markets is dominated by retail investors, but lacks ETFs and index funds that would make investing simple. What should an investor take into account when choosing among active mutual funds on offer?

As Australia grapples with weaknesses in corporate governance in the financial industry revealed by the Productivity Commission and the Banking Royal Commission, more corporate governance challenges can be expected with pressures coming from regulators and investors. How do investors, particularly large institutional investors, welcome this rise of stakeholder capitalism?

As initial coin offerings (ICOs) explode in popularity in the startup world, they are surrounded by controversy. The response of market practitioners and regulators has varied, from enthusiasm to outright bans. Li and Mann offer an economic analysis of the role of ICOs in development of platforms. They analyze economic efficiency to pinpoint when token sales create value. Their findings have implications for regulators and practitioners in the booming ICO market.

The recent financial blow ups and buy outs has put much emphasis on good governance; the Organization for Economic Cooperation and Development (OECD) and Australian Securities Exchange (ASX)developed principles and guidelines for compliance to prevent fund blow-ups. These guidelines though are geared toward international markets.

In the US and Europe, mutual funds dominate the investment market while in the Philippines, Unit Investment Trust Funds (UITFs) and mutual funds exist side by side with UITFs being more prevalent. This study focused on Employee’s Bank Trust’s team continuous effort in improving the governance framework of its Trust’s Unit Trust and Investment Funds (UITFs) through the use of action research. The team believed that the creation of a governance framework would add on to the organization’s competitiveness.

Data was collected through interviews, discussions, and documentation. The team, which included members from different units of Employee’s Bank, embarked on two action research cycles over the span of three year, from May 2012 to December 2015 as it applied Payne’s (2004) governance framework to the governance of Employee’s Bank Trust collective investment schemes. Payne’s framework highlighted five principles: code of ethics, law, regulations/regulators, independent directors, and lawsuits.

Using the framework, the team incorporated other principles believed to be necessary for a UITF governance framework through in-depth and regular consultations and meetings. The revised framework has allowed the team to improve fund governance. It was clear to the team involved in this endeavor that the framework had to be dynamic and open to modifications to incorporate improvements as time goes by. This study is significant due to the increasing popularity of collective investment schemes and the growing need to govern them accordingly. This information generated in this study will prove valuable in the creation of future policies and procedures to be compliant to governance practices.
The recent financial blow ups and buy outs has put much emphasis on good governance; the Organization for Economic Cooperation and Development (OECD) and Australian Securities Exchange (ASX)developed principles and guidelines for compliance to prevent fund blow-ups. These guidelines though are geared toward international markets.

In the US and Europe, mutual funds dominate the investment market while in the Philippines, Unit Investment Trust Funds (UITFs) and mutual funds exist side by side with UITFs being more prevalent. This study focused on Employee’s Bank Trust’s team continuous effort in improving the governance framework of its Trust’s Unit Trust and Investment Funds (UITFs) through the use of action research. The team believed that the creation of a governance framework would add on to the organization’s competitiveness.

Data was collected through interviews, discussions, and documentation. The team, which included members from different units of Employee’s Bank, embarked on two action research cycles over the span of three year, from May 2012 to December 2015 as it applied Payne’s (2004) governance framework to the governance of Employee’s Bank Trust collective investment schemes. Payne’s framework highlighted five principles: code of ethics, law, regulations/regulators, independent directors, and lawsuits.

Using the framework, the team incorporated other principles believed to be necessary for a UITF governance framework through in-depth and regular consultations and meetings. The revised framework has allowed the team to improve fund governance. It was clear to the team involved in this endeavor that the framework had to be dynamic and open to modifications to incorporate improvements as time goes by. This study is significant due to the increasing popularity of collective investment schemes and the growing need to govern them accordingly. This information generated in this study will prove valuable in the creation of future policies and procedures to be compliant to governance practices.

Japan FSA had an announcement for amendment of the audit standard to disclose Key Audit Matters on the independent auditors report. For responding FSA's public consultation, investors, researcher, information provides, CPAs, company accounting managers, internal auditor are gathering together, to discussed about this amendment of audit standard. This is the result of discussion.

In 2017, CFA Institute and the PRI agreed to undertake an ESG investing study that entails a survey, a series of workshops and the release of four reports: one case study report and three regional reports. The aim of the study is:

to understand the current state of ESG investing in listed equity and fixed income across the AMER, EMEA and APAC regions;

The results of the study and the feedback from the workshops will be published in the regional reports. There will also be regional and country guidance and case studies on how investors are integrating ESG issues into their investment analysis and decisions. These reports will be readily available for all CFA members and PRI signatories.

The survey contains two sets of questions that should take roughly 8 – 10 minutes to complete. It covers the impact of ESG investing at the financial market level and firm level. It is being completed by participants across seventeen countries.

If you like to fill out the survey, please do so by 15 June. We appreciate your response.

The term “ESG integration” is often used when talking about ESG investing. Practitioners new to ESG investing are sometimes uncertain what ESG integration is and how it is performed—so much so that they may not realize they are already performing integration techniques informally.

One definition of ESG integration is “the explicit and systematic inclusion of ESG issues in investment analysis and investment decisions.” Put another way, ESG integration is the analysis of all material factors in investment analysis and investment decisions, including environmental, social, and governance (ESG) factors.

What does that mean? It means that leading practitioners are:

analyzing financial information and ESG information;

identifying material financial factors and ESG factors;

assessing the potential impact of material financial factors and ESG factors on economic, country, sector, and company performance; and

making investment decisions that include considerations of all material factors, including ESG factors.

What does that not mean? It does not mean that

certain sectors, countries, and companies are prohibited from investing;

traditional financial factors are ignored (e.g., interest risk is still a significant part of credit analysis);

every ESG issue for every company/issuer must be assessed and valued;

every investment decision is affected by ESG issues;

major changes to your investment process are necessary; and, finally and most importantly,

- Using Distributed ledgers for the right reasons
- Introduction of crytocurrencies and ICO activities over the past years
- Risks for investors, regulators and the economies
- Key considerations for the future

As revealed in a survey conducted in Asia Pacific by CFA Institute in March, a majority (60%) of the 450-plus respondents have not had any experience investing in firms with a DCS structure, which signalled the urgency for and need to educate investors and the general public on the implications of DCS structures.

The survey, “Dual-Class Shares and the Demand for Safeguards,” revealed that respondents in the region were divided when asked whether DCS structures should be introduced to the market, with 53% opposing the introduction and 47% in favour. Regardless of their position on DCS, almost all (97%) respondents considered it necessary to enact additional safeguards if DCS structures are permitted.

Among different possible safeguards, more than 90% of respondents considered it appropriate to implement enhanced mandatory corporate governance measures as well as time- and event-based sunset provisions, such as automatic conversion of shares with super voting rights to ordinary voting rights. Specifically, 94% of respondents considered it appropriate to introduce a time-based sunset provision; among which, 91% of such respondents considered it appropriate to convert shares with super voting rights to ordinary shares within 10 years. Separately, 93% of respondents considered introducing a maximum voting differential appropriate; 63% of these respondents found a 2:1 maximum voting differential optimal.

This article qualifies for 0.5 CE under the guidelines of the CFA Institute Continuing Education Program. We encourage CFA Institute members tologinto the CE tracking tool to self-document these credits.

Based on the paper “Heterogeneity in How Algorithmic Traders Impact Institutional Trading Costs” by Tālis J. Putniņš and Joseph Barbara, available at https://www.arx.cfa/post/Heterogeneity-in-how-algorithmic-traders-impactinstitutional-trading-costs-4550.html

This paper was recently recognized for excellence by the CFA Institute Asia-Pacific Research Exchange (ARX) at the 7th Annual Financial Research Network (FIRN) Conference. FIRN is a network of finance researchers and PhD students across Australia and New Zealand.

Traversing the dense, tangled underbrush of an otherwise mostly explored section of securities terrain—the impact of automated, computerized trading—two researchers have demonstrated why it doesn’t pay to ignore the nuances of a complicated subject. Literally, it can cost billions to not heed the observations of authors Putniņš and Barbara, whose paper, “Heterogeneity in How Algorithmic Traders Impact Institutional Trading Costs,” is the subject of this ARX Practitioner’s Brief.

The July 2017 paper is a wake-up call for institutional investors who may not be as vigilant as they think they are when it comes to getting best execution on block orders, if only because their defenses might well be focused on the wrong bad actors, that is, high-frequency traders (HFTs). HFTs, argue Putniņš (University of Technology Sydney) and Barbara (Australian Securities and Investments Commission), are unfairly stigmatized and singled out among computer-program–based or algorithmic traders (ATs) for driving up big-block trade implementation costs when in reality, according to an exhaustive study of trading data, their impact is negligible.

In support of their argument, Putniņš and Barbara fully mapped and surveyed an algorithmic trading community comprising both HFTs, who transact a large number of orders at eye-blink speeds, and non-HFTs. In the process, they uncovered a variety of species and motives, some of which are even beneficial to institutions. On the surface, the ground the authors covered would seem cut and dried: grievances about HFTs have been voiced repeatedly, to the point where no one questions who in this narrative wears the black hat and who wears the white.

What the authors sought to understand was whether the complaints against HFTs had merit. Was there more to the story than what generally has seeped into the mainstream media via books such as Michael Lewis’ Flash Boys?

WHAT’S THE INVESTMENT ISSUE?
The rise of electronic equity trading venues at the dawn of the 21st century emptied the trading floors, drove down execution costs, and opened the way for technological advancements, such as order-implementation speeds measured in milliseconds, that few could have ever imagined. By the time of the 2010 flash crash, the fundamental manner by which stocks were traded had radically changed. Although a few die-hard specialists were still clinging to their Big Board posts back on that spring day in 2010, the flash crash made it abundantly clear that algorithms had taken over. At the center of regulatory scrutiny post-flash crash was high-frequency trading, the best-known and most controversial form of algorithmic trading.

With alpha scarce and trading venues fragmented, fund managers increasingly focused their energy on improving execution costs. For decades, the buy side railed against specialists front-running their institutional orders. Now, institutions face a new predator on their blocks: HFTs. These automated strategies account for more than half of the total volume during any given session, and some institutional investors claim they impede liquidity.

As a result of concerns about being preyed upon, institutional investors are forced to break large orders into smaller pieces that need to be traded across multiple venues, making them more susceptible to HFTs. In turn, new liquidity pools and networks have been created to provide a safe space. Yet, as Putniņš and Barbara point out, some studies show that, at best, high-frequency trading and algorithmic trading lower spreads and improve price discovery, and at worst, represented a benign force. So are HFTs good, bad, benign, or what?

HOW DO THE AUTHORS TACKLE THIS ISSUE?
Putniņš and Barbara created a data cross-section reenacting trading of the largest 200 Australian equities (ASX 200 Index constituents) over a 13-month period (1 September 2014 through 30 September 2015), amounting to 273 trading days.

Using unique trader-identified regulatory audit-trail data, they identified a subset of 187 of the most active nondirectional traders (AT/HFT) and measured their activity (roughly 25% of Australian volume on any given day) in terms of the impact on the execution costs for institutions, which control about 80% of Australian large-cap stocks. “Origin of order” identifiers, collected by the Australian Securities and Investments Commission, allowed the authors to reassemble smaller (child) orders back into larger (parent) ones.

Upon close inspection, the AT/HFT gang of 187 proved decidedly heterogeneous. Putniņš and Barbara categorized these traders across a spectrum, ranging from those who drove costs up the highest (toxic) to those who lowered them the most (beneficial).

WHAT ARE THE FINDINGS?
The 12 most toxic traders increased the average order-implementation shortfall cost by 10 basis points or nearly double the cost without the harmful behavior. At the same time, the 14 most beneficial traders systematically decreased costs, effectively, in aggregate, countering the negative impact. However, this offset in aggregate would not have come as any consolation to those individual buyers and sellers specifically impacted by the toxic traders. “An investor that disproportionately interacts with harmful AT/HFT faced higher costs,” concluded the authors.

Interestingly, HFTs were no more likely to be toxic than non-HFTs. And even those ATs/HFTs who drove up costs may have done so unintentionally, merely by trading on the most common entry and exit signals, behavior that could be described not so much as exploitative as lemming-like.

WHAT ARE THE IMPLICATIONS FOR INVESTORS AND INVESTMENT PROFESSIONALS?
First, for buy-side asset managers, it bears underscoring that execution matters. Potentially large cost savings can be realized from trading in a manner that avoids overexposure to toxic counterparties. Such savings could mean the difference between a fund that performs well and one that underperforms.

Second, in terms of execution strategy, more caution should be exercised in smaller stocks, where toxic traders tend to be more active.

Third, effort spent avoiding HFTs may be in vain because many HFTs are beneficial and can reduce institutional execution costs. At the same time, toxic non-HFTs should be avoided if one wants to minimize execution costs.

Finally, from a regulatory perspective, the empirical measurement tools featured in this research could be used to better monitor markets and identify predatory trading behavior.

Summarized by Rich Blake. Rich is a veteran financial journalist who has written for numerous media outlets, including Reuters, ABC News and Institutional Investor. The views expressed herein reflect those of the authors and do not represent the official views of CFA Institute or the authors’ employers.

To protect market integrity, regulators across the globe have applied trading constraining mechanisms like market-wide circuit-breakers, price limits, stock-based trading halts and the like. In June 2001, Securities Exchange Board of India (SEBI) introduced the market-wide circuit-breaker mechanism for Indian markets in a similar manner to other markets. Till date the Indian market has applied these marketwide circuit-breakers six times. This study attempts to examine the impact of market-wide circuit-breakers on trading activity and volatility. We consider data of Nifty closing price, turnover and number of shares traded for six different windows with event day, event plus 1-3 days, and 10 days average. The study estimates intraday return, overnight return high low volatility and day time volatility followed by T-test to measure the significance difference between average turnover, number of shares traded, high low and daily volatility with event day. The study finds that the effect of market-wide circuit-breaker continues up to three post-event days.

New research by CFA Singapore uncovers no evidence of broad-based market manipulation around company announcements on SGX.

Analysis of announcements data from 2011-2016 suggests any potential instances of manipulation to be isolated incidents, not part of a broader phenomenon

Research report recommends areas in which regulators may wish to strengthen oversight​​

MANIPULATION IN SINGAPORE EQUITIES

AROUND COMPANY ANNOUNCEMENTS​

WHAT IS MARKET MANIPULATION?

• Market Manipulation is defined as the deliberate creation of a false market in publicly traded securities with the aim of profiteering

• The study did not segregate types of manipulation; it is all-encompassing including illicit activities such as insider trading and ‘front-running’​

REPORT FINDINGS

• No evidence of broad-based manipulation around company announcements on Singapore Exchange (SGX) between Jan 2011 and Dec 2016

• Observed potential instances of manipulation around company announcements on SGX are standalone events and not part of a broader phenomenon

• Demonstrates that regulatory measures have been effective in preventing broad-based market manipulation

• Recommend certain announcement categories and sectors in which regulators may wish to strengthen oversight​

METHODOLOGY

• CFA Singapore and CRISIL analyzed publicly available data to determine the presence of market manipulation

• Conducted at the overall market level by looking at announcement categories and sectors, specific subset levels such as market capitalization, listing board and domicile

(S-Chips or non S-Chips) groups

• Announcements were custom-categorized for more granular analysis: 4 SGX categories and 60 sub-categories re-grouped under 15 custom categories and 106 sub-categories. The study was done across three forms of returns and for multiple cumulative holding periods, pre- and post-announcement.

• Visual inspection of price and volume performance around announcements used to identify the right methodology and key parameters to be adopted for a more formal study

• Hypothesis testing, a validation study, and robustness checks (stress tests) were conducted to ensure the stability of findings

Cryptocurrencies have grown rapidly in price, popularity, and mainstream adoption. The total market capitalization of bitcoin alone exceeds $250 billion as at January 2018, with a further $400 billion in over 1,000 other cryptocurrencies. Over 170 “cryptofunds” have emerged, attracting around $2.3 billion in assets under management. What was once a fringe asset is quickly maturing.

The rapid growth in cryptocurrencies and the anonymity that they provide users has created considerable regulatory challenges, including the use of cryptocurrencies in illegal trade (drugs, hacks and thefts, illegal pornography, even murder-for-hire), potential to fund terrorism, launder money, and avoid capital controls. There is little doubt that by providing a digital and anonymous payment mechanism, cryptocurrencies have facilitated the growth of “darknet” marketplaces that trade illegal goods and services.

In a recent research paper, we quantify the amount of illegal activity that involves the largest cryptocurrency, bitcoin. As a starting point, we exploit several recent seizures of bitcoin by law enforcement agencies to construct a sample of known illegal activity. We also identify the bitcoin addresses of major illegal darknet marketplaces. The public nature of the blockchain allows us to work backwards from the law enforcement agency bitcoin seizures and the darknet marketplaces through the network of transactions to identify those bitcoin users that were involved in buying and selling illegal goods and services online. We then apply two econometric methods to the sample of known illegal activity to estimate the full scale of illegal activity.

We find that illegal activity accounts for a substantial proportion of the users and trading activity in bitcoin. For example, approximately one-quarter of all users (25%) and close to one-half of bitcoin transactions (44%) are associated with illegal activity. The estimated 24 million bitcoin market participants that use bitcoin primarily for illegal purposes (as at April 2017) annually conduct around 36 million transactions, with a value of around $72 billion, and collectively hold around $8 billion worth of bitcoin.

To give these numbers some context, the total market for illegal drugs in the US and Europe is estimated to be around $100 billion and €24 billion annually. Such comparisons provide a sense that the scale of the illegal activity involving bitcoin is not only meaningful as a proportion of bitcoin activity, but also in absolute dollar terms. The scale of illegal activity suggests that cryptocurrencies are transforming the way black markets operate by enabling “black market e-commerce”. In effect, cryptocurrencies are transforming the black market much like PayPal and other online payment mechanisms revolutionized the retail industry through online shopping.

In recent years (since 2015), the proportion of bitcoin activity associated with illegal trade has declined. There are two reasons for this trend. The first is an increase in mainstream and speculative interest in bitcoin (growth in the number of legal users), causing the proportion of illegal bitcoin activity to decline, despite the fact that the absolute amount of such activity has continued to increase. The second factor is the emergence of alternative cryptocurrencies that are better at concealing a user’s activity (e.g., Dash, Monero, and ZCash). Despite these factors and numerous darknet marketplace seizures by law enforcement agencies, the amount of illegal activity involving bitcoin remains close to its all-time high.

In shedding light on the dark side of cryptocurrencies, we hope this research will reduce some of the regulatory uncertainty about the negative consequences of cryptocurrencies. Hopefully, more informed policy decisions that assess the costs and benefits will contribute to these technologies reaching their potential. Our paper also helps understand the intrinsic value of bitcoin, highlighting that a significant component of its value as a payment system comes from its use in illegal trade. This has ethical implications for bitcoin as an investment. Third, the techniques developed in this paper can be used in cryptocurrency surveillance in a number of ways, including monitoring trends in illegal activity, its response to regulatory interventions, how its characteristics change through time, and identifying key bitcoin users, such as “hubs” in the illegal trade network.

Are we really putting investors first? This is a story about ethics which highlights what I have learned from CFA Institute Code of Ethics and Standards of Practice.

The world of finance is filled with scams, dishonesty, and outright criminal activity. Demanding that financial professionals apply the same standard of behavior to their clients that we would for our family members is the first step to building a future based on ethical principles. "Care for clients as you would your mother."

As assets continue to flow from actively managed to index-tracking strategies, the largest index asset managers are becoming increasingly influential, often ranking among the largest investors of public companies. Despite this fact, little research has been done to understand how index managers carry out their investment stewardship responsibilities. In this paper, we share our findings and highlight what managers have in common and areas where they differ. We also provide a list of best practices that investors can use to assess how asset managers stack up.

Technology has fundamentally transformed how trading occurs on financial markets, but not everyone agrees that it is for the better. Few changes in how securities are traded have ever generated as much debate and disagreement as algorithmic and high-frequency trading (AT and HFT). On one hand, many academic and regulatory studies find that AT/HFT in aggregate is beneficial (e.g., lowering spreads and improving price discovery) or at worst benign. Yet, at odds with this view, many institutional investors claim that finding liquidity for large orders has become more difficult and their trading costs in contemporary markets are worse than before the technological advancements.

We reconcile these conflicting views using unique regulatory data for the Australian equities market. We show that behind the aggregate effects of algorithmic and high-frequency trading (AT/HFT) lies rich heterogeneity in the effects of individual traders/algorithms. We find that the most harmful traders double the costs of executing institutional parent orders. Beneficial traders offset much of this increase. HFTs are no more likely to increase institutional trading costs than non-HFTs. We identify other characteristics that distinguish harmful and beneficial traders. The paper explains why AT/HFT appear detrimental to some investors despite being beneficial or benign in aggregate.

The paper can be obtained here: https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2813870

We study the change in a jurisdiction of state and federal investment adviser regulators on investment adviser misconduct in the United States. Compared with advisers who did not experience the re-jurisdiction, we find evidence suggesting that misconduct increased after mid-sized investment advisers were required to switch from SEC to state regulation.

We examine the effect of United States’ conferral of Permanent Normal Trade Relations (PNTR) on China—a policy that eliminates the uncertainty of future tariff increases associated with Chinese goods— on U.S. firm innovation. We find a significant increase in the number of patents and patent citations for U.S. firms that are affected by PNTR relative to firms that are not affected. This result is stronger for industries that experience a greater increase in Chinese goods following PNTR. Overall, our evidence suggests that Chinese imports induce U.S firms to invest more in innovative technology.

By the end of 2015, U.S. mutual funds managed $15 trillion in assets. These funds control about 25% of the equity and 40% of the commercial paper market. As a result, regulations affecting these funds have asset pricing implications. In this paper, we analyze the liquidity management constraint imposed on these funds by the Investment Company Act of 1940. Due to the Act, some funds do not trade illiquid stocks. The non-tradability of these stocks leads to sub-optimal risk sharing. In a competitive equilibrium, we show that this constraint generates the ``betting against beta'' phenomenon. Moreover, because of this constraint, alpha is non-zero in general. Adding factors to eliminate alpha is therefore a futile exercise. Lastly, we empirically corroborate the theory by offering an alternate explanation of the distress risk anomaly.

First published in 2009, the Morningstar Global Fund Investor Experience study has promoted a
dialogue about global best practices for mutual funds from the perspective of fund investors. This
biennial report measures the experiences of mutual fund investors in 25 countries across North
America, Europe, Asia, and Africa. Morningstar researchers evaluated countries in four categories—
Regulation and Taxation, Disclosure, Fees and Expenses, and Sales. The grading scale was changed
in the 2017 study to better express where a country sits relative to global peers.

Thai insiders can earn significant abnormal returns from trading shares of their firms. The effect is more pronounced when trades occurred prior to earnings announcement. The results provide reasoning for regulation that prohibits the insiders to trade prior to earnings announcement. Both family ownership and control structure affects the magnitude of market reaction. The findings support the entrenchment effect in family firms. The presence of specific categories of blockholder has monitoring effect while some types of blockholder seem to enhance insiders’ signal and strengthen the market reaction. Significant reduction in abnormal returns earned by insiders in the firm with voluntary blackout policy suggest that the policy effectively forbid the insiders to trade when they possess valuable information that is not available to the public.

Are you a shareholder or analyst with an interest in mergers and acquisitions?
The accounting standard-setters need your expertise.

We are aware that M&As are common and can take the form of group restructurings or third party acquisitions. There is usually no question that there is underlying substance to acquisitions with third parties - the transaction price typically represents the fair market value of the acquired business. But M&As within a group might arguably be different.

The findings of this M&A survey will be published and will help us consider whether all M&As should be accounted and reported in the same way.

"Ethical issues in the financial services industry affect everyone, as almost all of society are consumers of its products and services. Given the vital role that financial institutions play, moral hazards may be more acute and it is therefore unsurprising that the industry should be subject to the highest ethical standards. Ethical dimensions create an environment based on trust and make economic transactions more predictable for producers and consumers".

"Restoring the trustworthiness of global business will be a long-haul and there are no short-cuts when it comes to trying to embed ethical behaviour in business DNA. But the dialogue in global board rooms is beginning to change with the importance of corporate culture, behaviours and the causal links to incentives and rewards gradually being recognised. Our international businesses will always have responsibilities that go way beyond compliance - you cannot regulate for good behaviour. Sustainable improvements in culture and behaviour in banking and right across the business landscape can only be achieved if individual institutions, owners, investors and the people leading and managing them step up to the plate. As Dr Madden's thought provoking book makes clear, responsibility and accountability have to move to the top of every Board agenda". Dame Collete Bowe, Chairman, UK Banking Standards Board.

The Standard Setting Department of the Hong Kong Institute of Certified Public Accountants is conducting a survey on the new auditor's report of listed entities. Feedback from users of financial statements is important for us to know whether the new requirement serves users' needs, and if not what could be improved. http://survey.hkicpa.org.hk/index.php?sid=55433&lang=en

In the latest issue (Issue 13 – August 2017), it covers the stories of:

Financial Crime Risk : Anti-Money Laundering Practices in Banking
To understand anti-money laundering, we have to understand what money laundering is. Money Laundering is the process of converting illegal funds into seemingly legitimate assets with the purpose of concealing the ownership or original source of these funds. This makes it difficult for the authorities to trace the origins of the funds. To counter this, the banking sector has established a set of internal regulations and system known as anti-money laundering. These are legal controls taken by financial institutions to investigate suspicious transactions to help prevent money laundering activities within the banking sector.

The Rise of Text Mining in Financial Markets
The world is awash in data. Financial markets are awash in data. We are generating around 2.5 quintillion (2.5×1018) bytes of information every day, and there is an average of 4,000 brokerage reports a day comprising around 36,000 pages in 53 languages. As market participants try to maximize their competitive edge from the growing mountain of information, the nancial world increasingly feels there is a need to harness the power of big data and it has been shaping the way they acquire, analyze and utilize data. The recent development is the rapid expansion of text mining. Hence, this article will focus on the development of Text Mining technology as well as Text Mining technique.

EXECUTIVE SUMMARY
Good corporate governance is increasingly considered one of the prime drivers of business success. Through transparency, equitable treatment of all shareholders, and a robust system of sound practices and procedures, good corporate governance can enhance performance and growth, both in the individual firm and at the national level.

A solid corporate governance framework is particularly important for family firms, which face unique challenges as they balance the advantages and disadvantages of family involvement in the business.

Based on an analysis of 56 family-controlled listed companies in 14 jurisdictions,* the CFA Institute report, Corporate Governance for Asian Publicly Listed Family-Controlled Firms, identifies opportunities to enhance corporate governance structures for family firms in the region. The report reveals how effective corporate governance can help these companies—and the regions in which they operate—continue to achieve economic success.

FAMILY FIRMS AS THE DRIVERS OF ASIA’S FUTURE GROWTH
Over the last few decades, Asian family firms have played a pivotal role in fueling the region’s economic growth, and their influence will continue to rise. By 2025, the number of firms in Asia with revenue exceeding USD1 billion is expected to be nearly equivalent to that in developed economies globally. Family firms will represent 75% to 80% of those entities.
However, the growth of Asian economies in recent decades has been largely propelled by low labor and production costs. As the performance of Asian economies begins to mirror that of developed economies, their future capacity for growth will not be sustainable if they are competing on cost alone. To remain competitive, Asian family firms must innovate, expand outside of traditional markets, and professionalize, which will necessitate the tapping of global talent and capital. This will put pressure on these firms to have a corporate governance structure in place that can meet international standards and investor expectations.

CHALLENGES FOR ASIA’S FAMILY FIRMSChallenges of Internationalization
Between 2000 and 2010, the total market capitalization of Asian family firms grew significantly. A major driving force behind this was an entrepreneurial desire among Asian family firms to use capital market funding to expand in new markets, with the number of listed family firms increasing 62%. As more family firms use capital markets to fund their internationalization plans, they will face the challenge of developing sound corporate governance frameworks that meet the needs of the heightened regulatory environment and the scrutiny that comes with being listed.

Challenges of Professionalization
Although Asian family firms prefer to pursue family-management succession plans, many recognize the need to capitalize on external talent to meet future business pressures. Efforts to professionalize a family firm, however, may be double-edged.

On the one hand, professionalization might boost a firm’s effectiveness. On the other hand, professionalization might give rise to additional agency costs, such as the need to offer incentives to align the interests of professional management with those of family members. If a family firm is to realize the benefits of bringing in external talent, then that incoming management will need the freedom to do the job for which they were hired. Defining an optimal equilibrium between family culture and external professionalism is therefore imperative to facilitate future value creation without incurring greater expenses.

Challenges of Dispersed Ownership
The average percentage of family ownership of large-size family firms in Asia is substantially lower than that seen in their European and North American counterparts. This implies increased ownership diversity, which can result in two major issues. First, with a widely dispersed minority ownership structure, the entity is potentially exposed to greater majority/minority owner conflicts. Second, Asian family owners who wish to expand their businesses while still retaining control may rely more on creditors than on further equity dilution. This could potentially lead to greater shareholder/creditor conflicts. Family firms should develop corporate governance policies to address these concerns.

WHERE CORPORATE GOVERNANCE CAN PLAY ITS PART
Research is inconclusive on whether the family-firm construct enhances or diminishes corporate governance practices. In theory, the long-term horizon and closer alignment of principal-agency interest in family firms should improve corporate governance. However, those same features could prove problematic by increasing risk, whether as a result of a lack of transparency, entrenchment, or wealth expropriation from minority owners.

A solid corporate governance framework is essential for family firms to effectively balance the advantages and disadvantages of family involvement in the business. Combining governance, management, and ownership in the hands of family can bring benefits, but this centralized decision-making structure inevitably brings risks. Sound corporate governance practices can help family firms include different perspectives on their boards, which can mitigate risks. Moreover, such practices can help family firms balance the interest of different stakeholders, a task essential to the long-term sustainability of these entities. As well, sound corporate governance practices can help family firms reduce their cost of capital and reduce capital waste, making them more attractive investment targets and more competitive entities.

THE WAY FORWARD
The complex challenges facing publicly listed family firms in Asia are influencing the underlying corporate governance frameworks of those firms. Through a holistic understanding of corporate governance features supporting firm performance and value across the region, these firms will be better able to address the difficulties they face and to thrive in the future. The development of policy recommendations that assist in enhancing the corporate governance practices of Asian publicly listed family firms will also increase protection for minority owners from wealth expropriation by the majority, controlling family owners.

Learn more about how corporate governance can impact family firm value and success at www.cfapubs.org/toc/ccb/2017/2017/1.

This study aims to analyze the dynamic relationship between key macroeconomic indicators of Pakistan including gold prices, stock market returns, and exchange rate and oil prices. Significant variations or shocks have been observed over time especially in the past decade among the stated macroeconomic variables. It is essential to validate the relationship between them periodically and this study will help investors who want to diversify their investment into various assets classes including financial assets and real assets.

The article aims to build awareness and knowledge of culture and the vital role it plays in the long-term sustainability of the financial services industry

It invites readers to think about:

the worsening issue of cultural integrity and why it has become a concern for the financial services industry, specifically in Australia and at a broader global level

the purpose of the financial services industry, the importance of factors such as trust and reputation that are associated with culture based in high standards of integrity and professionalism vs short term market gains

the concept of steward ship of other people’s money and the dilemmas and conflicts for industry behind that concept of stewardship, the relevance of stewardship to industry’s moral compass and the relevance of culture in being good stewards

identifying what culture is, why it matters and why the community deserves an industry with strong cultural integrity to be stewards of their money

the role of professionalism in culture, how the foundations of culture are built and sustained through the core components of professionalism: competency, compliance and ethics

the benefits to industry that adopts and sustains such a culture

*The article was first published in June 2017 and is in the current edition of the Journal of Financial Compliance.

WHAT’S THE INVESTMENT ISSUE?
In this brief, we provide an investor’s-eye view of a piece of research that shines a floodlight on an inherently opaque subject—private meetings between senior management and investors. Both camps are presumed to know better than to share or receive anything that could be considered material non public information (MNPI). Nonetheless, the authors of this study point to some dubious trends associated with these sit-downs. The question of whether a falling tree makes noise in a forest devoid of hearing-enabled life forms has long held its own as a rudimentary philosophical riddle. But as a practical matter for debate, it’s not much of one, i.e., we’re pretty sure that in all likelihood, a tree crashing to the ground does make a sound. Now ponder this: If a private meeting between senior management and a fund manager takes place—and no one else is there to hear what’s said—are there consequences in the stock market? In other words, what is the point of these cozy sit-downs? Do the parties stand to benefit? Such meetings, of course, are routine and perfectly legal, provided the executives at the publicly traded company steer clear of disclosing any MNPI. The authors set out to ascertain, among other information, to what extent corporate insiders—who control the timing and content of meetings—trade on those meetings. “Overall, our results suggest that companies disclose material non-public information during these meetings and some participants trade on the information,” the authors state.

HOW DO THE AUTHORS TACKLE THIS ISSUE?
The question of whether the meetings lead to some competitively advantageous information being leaked, maybe inadvertently, under the camouflage of crafty syntax, or even brazenly, might have remained one of mankind’s eternal mysteries had it not been for the Shenzhen Stock Exchange (SZSE). In 2009, the SZSE became the first exchange to require listed companies to report dates of private meetings with investors. Since August 2012, the SZSE has also required summary notes of what was said during those meetings, creating a dataset of some 17,000 meeting reports that the quartet of authors mined to startling effect. The authors found highly suspicious trading patterns among company insiders timing transactions ahead of and in the wake of private meetings. Although only 20% of private meetings can be connected with disclosed insider-trading activities, it is worth underscoring that the trades, some USD12 billion over a 28-month sample period (August 2012–December 2014), represent nearly two-thirds of the value of all insider trading among SZSE-listed companies during that time. Interestingly, nearly three-fourths of listed companies held at least one private meeting per year; the average was around five meetings per year. Most meetings were hosted in the companies’ headquarters.

WHAT ARE THE FINDINGS?
The research shows a clear trend of abnormally positive stock returns starting approximately 22 days prior to the private meeting dates. In fact, the average stock price run-up translates into RMB73.1 million (or about USD11 million) per average firm in the sample. Call it the “meeting anticipation effect” whereby investors/insiders trade on the not-irrational belief that in-house meetings generally reveal positive information. Some insiders appear to be selling into what they anticipate to be herd buying, using the increased volatility to mask their offloads.

WHAT ARE THE IMPLICATIONS FOR INVESTORS AND INVESTMENT PROFESSIONALS?
Many large institutional investors will undoubtedly scoff at the implication that they are gaming the system—or being gamed—by participating in face-to face conversations with the leaders of the companies in which they are investing large sums. These fund managers will also point to proprietary research processes that emphasize sophisticated models and, using the authors’ term, a “mosaic” of skillfully assembled information. Companies that hold meetings, likewise, could just as easily frame these interactions as transparent corporate citizenry, as evidenced by the high “information quality” scores enjoyed by the majority of the companies that report private meetings. The pieces are thus firmly in place for the facilitation of reinforced feedback loops: Companies that hold meetings have more analysts covering them, and these analysts represent large funds whose trades are closely watched. Insiders, who have seen this movie before, are not blind to the ripple effects of a few well-placed dollops of promising insinuations or even flat-out MNPI utterances. That there is an opportunity, thanks to the SZSE and the authors, for a sophisticated fund manager to write an algorithm scouring the mere record that meetings took place in an effort to catch some window of upside could be seen as one logical outcropping of the findings here, although we can think of another. Regulators in a developed market such as the United States might also find it useful to require some record of private meetings. Fund managers in the United States spend USD1.4 billion a year for face time with executives. The investment pays off well for those fund managers who are invited to these meetings and who make profitable trades around the meeting dates. According to the authors, the information gained from private in-house meetings provides these fund managers, and their investors, with an additional competitive edge. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Summarized by Rich Blake. Rich is a veteran financial journalist who has written for numerous media outlets, including Reuters, ABC News and Institutional Investor. The views expressed herein reflect those of the authors and do not represent the official views of CFA Institute or the authors’ employers.

WHAT'S THE INVESTMENT ISSUE?
During the last 18 months, China has witnessed a flurry of securities fraud investigations and arrests involving a wide cross-section of the industry, from high-rolling financiers to humble accounting professors, and even some regulators. The insider-trading crackdown is partly an effort to wash away perceived stains of corruption following the crash of summer 2015. Even before that, though, Chinese insider trading cases had begun to mount as the market, and mechanisms to regulate it, matured. Despite its relative inexperience, China’s stock market is the second largest on earth. Still, an assumption persists (and is studied by researchers such as Chi) regarding the relative information inefficiency and asymmetry of less developed markets such as China. In his article, Chi makes no secret of his own perceptions about the pervasiveness of non-public information used for investing. One given in the hypothesis suggesting there are greater inefficiencies to potentially exploit in China relative to the United States is the fact that most Chinese mutual funds can outperform the index—certainly not the case in the United States. For Chi, then, the driving question becomes: To what extent is private information exploited in a less developed financial market such as China? To a significant degree, as it turns out. Chi’s research suggests that at a minimum, the insider buy is a powerful predictive tool for the generally upward direction of the stocks being bought, particularly for issues from state-owned enterprises (SOEs), and even more so for highly volatile stocks.

HOW DOES THE AUTHOR TACKLE THIS ISSUE?
Chi sets out to study insider trading in China via a proxy that, although an obvious choice, is nevertheless not to be conflated with criminal insider trading. That is, he looks at legal, disclosed trades made by corporate insiders, which, despite being purportedly aboveboard, still carry a connotation of information advantage. By creating a basic strategy to mimic insider buys, Chi demonstrates, at least on paper, the ability to add considerable alpha. Note that mimicking insider sells is not a good idea because sellers can have multiple motivations (e.g., liquidity or diversification needs). Buyers, on the other hand, generally are motivated by positive information. Mimicking insider buys may once have worked in the United States, when its stock market was nascent. Today, however, although by no means devoid of insider trading, the US market is viewed in academic terms as "efficient in semi-strong form." More informally, the system is not "rigged." If it were, Chi asserts, more US mutual fund managers would beat the index. In China, the perception of a rigged system became increasingly rampant after the summer of 2015 crash, as traders such as Xu Xiang (the Carl Ichan of China) seemed impervious to the market collapse when most other investors were crushed. Xu would later admit to conspiring with executives to control the timing of corporate announcements. To explore how private information is wielded in China, the author tapped the Wind Information database to study trading activity of corporate insiders (top executives, board members) between April 2007 and June 2014, focusing on the A-share market on two exchanges (Shanghai and Shenzhen) comprising some 2,555 stocks with a combined market cap (in 2013) of RMB20 trillion, or USD$3.3 trillion. The insiders' trading activity amounted to RMB900 billion, or 0.3% of total trading. Chi found the following: • Insiders reap large profits trading their company stocks. • Insider buys possess predictive power to stock prices; insider buys from SOEs have even stronger predicative power. • A rudimentary “mimicking-strategy” implemented for 12-month periods added 14.4% worth of annual alpha above the benchmark. And guess what else he found? The best-performing Chinese mutual funds' returns strongly correlated to the insider-mimicking strategy. Importantly, the fact that a fund trades in the same direction as insiders does not necessarily imply trading on material inside information. The author merely claims “that more correlated trading patterns point to a higher likelihood of private information shared by stock funds and corporate insiders." Because of data limitations, he cannot make a further claim about how fund managers obtain such private information.

WHAT ARE THE IMPLICATIONS FOR PORTFOLIO MANAGERS?
Before one delves into the art and science of insider-mimicking strategies, it is important to note an additional finding by the author. Chi split his six-year study into two three-year periods. In the latter period, the predicative power of the insider buy diminished significantly compared with the first period. So, as time passed, the Chinese market appears to have become more, not less, efficient. Here’s one last bit of material information that is hardly any secret: China’s recent insider trading crackdown will serve only to accelerate this trend. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Summarized by Rich Blake. Rich is a veteran financial journalist who has written for numerous media outlets, including Reuters, ABC News and Institutional Investor. The views expressed herein reflect those of the author(s) and do not represent the official views of CFA Institute or the authors’ employers.

This paper tests the effectiveness of trading range break (TRB) trading rules in the Hang Seng index futures market. Such trading rules are linked up with a test using market high-time and market low-time. It is discovered that the market inefficiency observed by Mok, Li and Lam (2000) has no longer persisted in HSIF market. This particular example is interesting because the market inefficiency does not come together with any trading rule.

Industry analysis is a part of EBLSL research product basket. The attached report contains the current market condition and competitive structure of the steel industry in Bangladesh. Besides, the report also contains a comparative review on the listed steel manufacturing companies in the capital market of Bangladesh.

While corporate private in-house meetings between investors and management are common across the world, there are generally no detailed reporting requirements for these meetings. The Shenzhen Stock Exchange in China is an exception and thus provides a unique opportunity to look inside the ‘black box’ to examine the structure and consequences of private in-house meetings. We develop a unique large-scale hand-collected dataset by accessing over 17,000 private meeting reports over 2012-2014 and use reported meeting details to examine the consequences of private in-house meetings. We find that, on average: (i) the stock market anticipates positive news in these private meetings as there is a significant stock price run-up starting about 30 days before the meeting date, (ii) the market reacts strongly and positively around these meeting dates, and (iii) the market reacts again around the subsequent public disclosure of the meeting notes. Further, we find that company insiders engage in significant trading activities around these meeting dates, selling over $12 billion USD of their shares – almost 62% of the total value of all insider trades for Shenzhen-listed firms in our sample period. Most importantly, it appears that company insiders are able to time their transactions: they tend to sell more shares before negative news disclosures but hold off selling when there is positive news to be disclosed in the meeting. Overall, our results suggest that firms disclose material non-public information during these private meetings, and that at least some meeting participants and company insiders trade on this information before it is publicly available. Finally, it appears that disclosure of private meeting details can be beneficial for market participants who are unable to attend such meetings. We discuss implications of these findings for disclosure requirements in the other countries.

Risk Management in the Medical Sector. Risk Management can bring a better decision making and reduce the number of errors, so as to ensure a high quality and effective service being provided. In the past 20 years, the hongkong Hospital Authority (HA) showed great support to develop large scale computer-based systems to manage and reduce the risk within the healthcare sector. To have a deeper understadning on how the systems work, we have invited Dr. CP Wong, Chairman of Society of Medical Informatics Ltd to share with us the success and benefits in risk managment in Hong Kong public hospitals.
Safety and Risk Managemnt in the Railway Industry. As an industry with over 15,000 employees, the railway industry is inevitably at risk for human mistakes, leading to a need for risk management measures to reduce operational errors in order to achieve its customer pledge. Let's examine this under serveral issues: benmarking, drivers' training and selection, and risk management and risk identification.

The investigative work of Professional Conduct has always been associated with words like secretive, mysterious, or private. That is only part of our story in Professional Conduct. Read on to find out more about our work in Professional Conduct and volunteering opportunities to help make a meaningful difference -- the CFA brand is important to protect, so is market integrity and ethical standards.

This paper examines the dynamic conditional correlations between the Chinese
sector returns and the S&P500 index returns and offers an interpretation for the
heterogeneity of sector-level return correlations. Using a sample of 12 Chinese sectors for the period of 2006-2014, we first observe that their conditional correlations with the S&P500 index vary signicantly across sectors and across the two crises, namely, the 2008-2009 Global Financial Crisis and the 2010-2011 European Debt Crisis. We then interpret the heterogeneity of sector-level conditional correlations as arising from their heterogeneous sensitivities to investment shocks. We finally verify our interpretation. Our main finding is that sector-level investment opportunities, as proxied by book-to-market ratio, capital expenditure, long-term debt ratio, growth rate of industry size, and Tobin's Q, are significantly associated with the magnitude of their dynamic conditional correlations. This paper thereby advances our understanding of sectoral heterogeneities from the perspective of their responses to an outer investment shock.

A blog post on a recent CFA Society Sri Lanka town hall meeting that touched on improving financial market integrity, putting investors first, and upholding the highest standards of ethics and business practices.

Asset Manager Code of Professional Conduct is currently available in 13 languages.
They are Arabic, Chinese, English, French, German, Indonesia, Italian, Japanese, Korean, Portuguese, Russian, Spanish and Thai.

We examine the market's reaction around a series of events on the Kuala Lumpur Stock Exchange (KLSE) where the Malaysian government removed short selling restrictions on selected stocks and then subsequently reimposed these restrictions. These events provide a unique opportunity to analyse the effects of short selling restrictions on the price formation process in an emerging market. It has been argued that the impact on prices from incorporating negative information via short sales should lead to a correction of the upward bias in prices prevalent under short selling restrictions. This should result in lower prices and observed returns around the announcement of the removal of short selling restrictions. Conversely, it can be argued that the removal of these restrictions helps complete markets, permitting full price discovery. This is particularly important in a market like Malaysia where stock options are not traded. Here the immediate impact of a removal of short selling restrictions would be an upward revision in security prices resulting in positive observed returns. The opposite revaluation effects should hold in the situation when short selling restrictions are reimposed. We find evidence consistent with the explanation that the removal of short selling restrictions results in more complete markets and is valued by market participants, particularly for actively traded stocks.

This research article intends to create awareness about DVRs/Dual class shares in India, to study the international as well as domestic experience and tries to examine the various factors that affect DVR share prices.
This is an Accepted Manuscript of an article published by Taylor & Francis in Macroeconomics and Finance in Emerging Market Economies on 01 March 2012, available online: http://www.tandfonline.com/doi/abs/10.1080/17520843.2011.643539

Dealings within corporate networks are common in Japan and can pose a significant risk to investors. Evidence suggests that such practices may have a negative impact on shareholder value. This study sheds light on the issue by examining some cases of inter-corporate and related-party transactions. The study also gives an account of the historical development of corporate structures in Japan, reviews ongoing efforts to improve corporate governance in Japan, and explores relevant disclosure issues. Protection of minority shareholders can be enhanced by improving the frequency and content of disclosures, requiring shareholder approval for major transactions, and reducing the number of parent/subsidiary listings.

This is a presentation that provides a detailed analysis of the Dick Smith collapse chronicling the acquisition by Anchorage from Woolworths in September 2012 through to its passing into voluntary administration in early 2016. This presentation addresses the role of Anchorage and senior management in this collapse. It also provides some commentary around PE listings and the role of auditors and investigative accountants. Questions and comments are welcome.

Recent international forums such as COP21 and the World Economic Forum have drawn increased attention to global economic risks arising from corporate environmental, social and governance (ESG) practices and performance. The global drive towards considering ESG factors as core components of business and investment strategies gains momentum year-on-year. Based on a presentation shared with CFA members in New Zealand and Melbourne, this FTSE Russell article explains the trends taking place in Australia and Asia Pacific…

RI Asia 2016 took place at the Tokyo Stock Exchange on the 23-24th February, and was attended by approximately 400 domestic and international participants. Whilst each participant may have a different take on the two days, I am delighted to share with you my own thoughts.

This is a lunchtime address at the ASIC annual forum 2016 by John Fraser, Secretary to the Treasury on the topic: "The Importance of Culture" In his closing remarks, he said this:
"All of us involved in the financial sector have to realise that if community expectations are not being met, the result may well be more prescriptive rules, which may over time not be a good outcome for industry or the general public.
As I said at the outset, the world in which we find ourselves in is one in which the cultivation and maintenance of a robust institutional culture will be a key determinant of success.
Rules and regulations will adapt to these circumstances but one thing should be a constant – ethical and honest behaviour flowing from the right culture in all parts of the economy."

The findings of academic research carried out in developed markets such as India and published in scholarly journals are perceived to be remotely related to the real world of practitioners and moreover. Investment managers who apply scientific theory proven in developed market environment seldom get what they desire in developing markets. In a real world where investment practitioners look for actionable solution, academic scholars are perceived to complexify issues in their attempt to theorize real world problem by considering all possible manifestations and contingencies.

Using tick-by-tick data on the FTSE ST indexes, which yielded more than 12 billion data points spanning the period from 2003 to 2013, we examine the existence of portfolio pumping activities on the Singapore Exchange. The findings indicate that pumping does not seem to exist at the market level. But heightened activities and abnormal security price increases were evident, particularly at year-ends. Exploring at a segmental and stock level, we derive additional insights on possible groups of stocks that could be pumped. In regard to the impact of enforcement activities, referenced with a landmark case related to portfolio pumping activities in Singapore, our analysis suggests that the combination of effective judicial process and market microstructure reforms have contributed to a reduction of such potential misdeeds.